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FOR IMMEDIATE RELEASE
OLDWICK, N.J. - JUNE 15, 2005 12:00 AM (EDT)
A.M. Best Co. has downgraded the financial strength rating to A (Excellent) from A+ (Superior) of Pharmacists Mutual Insurance Company (Pharmacists Mutual). The rating outlook has been revised to stable from negative. Additionally, A.M. Best has affirmed the financial strength rating of B++ (Very Good) of its subsidiary, The Pharmacists Life Insurance Company (Pharmacists Life) (both of Algona, IA). The outlook for this rating is stable.
The rating downgrade of Pharmacists Mutual primarily reflects its substantial adverse loss reserve development reported in recent years, below average operating returns and variability in underwriting and operating results. Conversely, Pharmacists Mutual should benefit from several actions taken by management in 2004 related to the reorganization of the company's claims operations, which could ultimately lead to more adequate loss reserves going forward.
Despite the rating downgrade, Pharmacists Mutual maintains a strong level of risk-adjusted capitalization and is recognized for its historically favorable underwriting results, effective and efficient direct marketing strategy, expense containment and leadership position as the largest independent insurer of pharmacists in the United States.
Much of the adverse loss reserve development reported in recent years has largely occurred within its commercial multi-peril, workers' compensation and personal auto liability lines. Underwriting results also have been adversely affected by Pharmacists Mutual's expansion in its home health care target market, which has produced loss ratios much higher than its home medical equipment and core pharmacy markets. The company's weaker than historical loss experience has also led to higher reinsurance costs and the need to pursue more adequate premium rates.
Furthermore, in 2003, Pharmacists Mutual settled a highly-publicized, class action lawsuit (the Courtney case) involving an insured who intentionally diluted various compounded drugs over a number of years. Due to the unusual nature of this lawsuit, the settlement amount of $6 million (net of reinsurance) was accounted for as a write-in item and was not included in underwriting results reported in 2003.
The rating affirmation of Pharmacists Life reflects its more than adequate risk-adjusted capitalization and its important life insurance focus within the parent organization-Pharmacists Mutual Companies.
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